Illinois becomes first state to regulate AI mental health with $10K fines

Illinois has enacted the Wellness and Oversight for Psychological Resources Act, the first state law specifically regulating AI use in mental health services, signed into law on August 1, 2025. The legislation creates strict requirements for both AI companies whose systems provide mental health advice and therapists who integrate AI into their practices, establishing penalties of up to $10,000 per violation and signaling the start of broader regulatory action across other states and potentially at the federal level.

What you should know: The law targets two primary groups with different restrictions and requirements.

• AI makers cannot allow their systems to provide mental health advice to Illinois residents unless overseen by licensed professionals, even if the AI wasn’t specifically designed for therapy.
• Mental health professionals can use AI for administrative tasks but face severe limitations on therapeutic applications, including prohibitions on AI making independent decisions or directly interacting with clients.
• Generic AI systems like ChatGPT or Claude that happen to dispense mental health advice could violate the law if used by Illinois residents without professional oversight.

Why this matters: Mental health consultations represent the top use case for generative AI, creating a massive regulatory blind spot that Illinois is now addressing.

• The law establishes a template that other states are likely to adopt, with federal legislation potentially following.
• AI companies face significant legal exposure since they’ve largely operated without specific mental health regulations while their systems serve as de facto therapists for millions of users.
• The legislation could reshape how both AI companies and mental health professionals approach AI integration, potentially stifling innovation in digital mental health tools.

Key restrictions for therapists: The law severely limits how licensed professionals can incorporate AI into therapeutic practice.

• AI cannot make independent therapeutic decisions or generate treatment plans without professional review and approval.
• Direct AI-client interaction for therapeutic communication is prohibited, even for homework assignments or follow-up care.
• AI cannot be used to detect emotions or mental states, eliminating many potential therapeutic applications.
• Permitted uses are largely confined to administrative tasks like scheduling, billing, and basic logistics.

Enforcement challenges: The law’s broad language creates potential compliance difficulties for both AI companies and therapists.

• The $10,000 maximum penalty per violation could add up quickly for AI companies with thousands of users, though it may not deter billion-dollar tech firms.
• Consumer consent provisions specifically invalidate buried terms of service agreements and deceptive practices that AI companies currently use to disclaim responsibility.
• The definition of “Internet-based artificial intelligence” might create loopholes for smartphone-based AI models that don’t require internet connectivity.

Industry implications: The legislation reflects growing tension between AI innovation and consumer protection in mental health.

• AI companies have relied on mental health applications as a primary driver of user engagement while attempting to limit liability through disclaimer clauses.
• Many therapists are adopting AI tools to compete with direct-to-consumer AI therapy, but the law may force them to abandon therapeutic AI applications.
• Lance Eliot, the article’s author, argues the law goes “a bridge too far” by potentially stifling beneficial innovations in AI-assisted therapy.

What’s next: Illinois serves as a testing ground for broader AI mental health regulation across the United States.

• Other states are expected to introduce similar legislation, potentially using Illinois’s law as a template.
• Federal lawmakers may pursue nationwide standards for AI mental health applications.
• The law’s impact on innovation versus consumer protection will likely influence how future regulations balance these competing priorities.